15 Derivative financial instruments

Within the scope of balance sheet management, interest rate swaps are concluded to hedge interest rate fluctuation risks. These instruments are fair value hedges. Furthermore, derivative financial instruments are employed primarily within the context of transactions for clients. Both standardised and OTC derivatives are traded for the account of clients. Swiss banks having a high credit worthiness act as counterparties. The bank does not assume a market-maker function. Derivative financial instruments are used to a limited extent in the management of the bank’s own securities portfolio.

The LLB Group employs fair value hedge accounting for interest rate risks on fixed-rate instruments. For this purpose it uses interest rate swaps. In the 2017 financial year, these had a nominal value of CHF 340 million (31.12.2016: CHF 240 million), as well as a positive replacement value of CHF 1.4 million (31.12.2016: CHF 1.3 million) and a negative replacement value of CHF 1.8 million (31.12.2016: CHF 2.2 million). At the same time, the loss on hedging instruments totalled CHF 0.8 million (2016: loss of CHF 0.5 million) and the profits on the hedged underlying transactions amounted to CHF 1.1 million (2016: profit of CHF 0.6 million).